Wednesday, September 24, 2008

Speculation On A Bottom

Recent events have put the markets in a precarious position. It's clear that if last week's lows are taken out on volume that a crash could unfold, but will that be the case? The short term bottom on September 17 occured at precisely 3x55=165 days + 1 day from the January 24 bottom earlier this year. This marks the bottom of the 3rd 11 week cycle in the 4x11=44 week cycle. After the January low, markets rallied for 7 days before falling to new lows. We now have a situation that could repeat that pattern, except this time the pent-up expectations of a government bailout of historical magnitude could enable the market to rally until the end of October which would coincide with the high of the 11 week cycle.

I have recalculated the 44 week cycle low date and the corrected date for a low is December 5th. However, there are some other longer term cycles due to bottom in mid-November so a bottom could come early. This would lead to an expected year end rally followed by another January swoon and another March low in 09.

I will be looking to get short again at the declining 50dema in the Qs which now also corresponds to the bottom of the upsloping channel from the 2002 low. I will only exit on a solid close above the August high. If the markets crash through the September lows before then, then I will be looking to jump on board because it should be straight down. However, in that case a smaller position size would be warranted due to the possibility of a massive whipsaw.

These are difficult times to trade and being heroic will not win you any awards. Better to sit it out and wait for clear signals than to take huge risks if you are uncertain about your plan of action.

I wish you all great success in the coming weeks.

No comments: